IPO Preview: Berkeley Lights Pursues U.S. IPO

IPOStreet

Berkeley Lights (BLI) has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm performs a variety of cell-based characterization services for digital cell biology applications.

BLI has grown impressively but has been impacted by the Covid19 pandemic.

Emeryville, California-based Berkeley Lights was founded to provide a range of cell research services in the areas of antibody therapeutics, cell therapy and synthetic biology.

Management is headed by Mr. Eric Hobbs, Ph.D, who has been with the firm since May 2013 and was previously senior roles at FormFactor, semiconductor technology firm.

Below is a brief overview video of the firm's approach:

Source: NVIDIA

The company’s primary offerings include:

  • OptoSelect chips
  • Reagent kits
  • Advanced automation systems
  • Advanced application and workflow software

Berkeley Lights has received at least $235 million from investors including WRVI Capital, Sequoia Capital, Igor Khandros, and Nikon Corporation.

The company markets its offerings directly to prospective customers via an in-house sales force aimed at research use only [RUO] markets.

Management says it believes there are about 1,600 companies, government entities and academic institutions making its addressable market total $23 billion, comprised of the following:

  • Antibody therapeutics - $6 billion
  • Cell therapy - $15 billion
  • Synthetic biology - $2 billion

Sales & Marketing expenses as a percentage of total revenue have been uneven as revenues have increased.

The Sales & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales & Marketing spend, dropped sharply to 0.4x in the most recent reporting period.

According to a 2019 market research report by MarketsAndMarkets, the global market for cell analysis was an estimated $16 billion in 2019 and is forecast to reach $22.7 billion by 2024.

This represents a forecast CAGR (Compound Annual Growth Rate) of 7.2% from 2019 to 2024.

The main drivers for this expected growth are growing government funding for cell-focused research activities and an increased incidence of chronic and infectious diseases.

Also, the industry is expected to face the twin challenges of the current high cost of its services and not enough skilled workers.

Below is a chart showing the historical and projected growth of the cell analysis industry by region:

blicellanalysis

Major competitive or other industry participants include:

  • Danaher (DHR)
  • Menarini Silicon Biosystems
  • Miltenyi Biotec
  • Sphere Fluidics

Berkeley Lights’s recent financial results can be summarized as follows:

  • Growing topline revenue, but decelerating in the most recent quarter
  • Increasing gross profit but variable gross margin
  • Uneven operating losses and operating margin
  • Variable cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

blipl

Source: Company registration statement

As of March 31, 2020, Berkeley Lights had $70.3 million in cash and $46.1 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was negative ($25.9 million).

Berkeley Lights intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO ‘for general corporate purposes, including working capital, and funding our research and development and sales and marketing activities.’

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are J.P. Morgan, Morgan Stanley, Cowen and William Blair.

Commentary

Berkeley Lights is seeking $100 million to continue its expansion efforts.

The firm’s financials show the apparent effects of the Covid19 pandemic on its revenue and operations, with a sharp slowdown in Q1 2020’s results and likely the same or worse in Q2 2020 when that is reported.

Sales & Marketing expenses have varied markedly as revenues have fluctuated, as has its Sales & Marketing efficiency rate, which dropped sharply in the most recent quarter.

The global market opportunity for the firm’s cell analysis services is projected to grow strongly in the years ahead, so BLI has impressive long-term industry growth potential in its favor.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 80.1% since their IPO. This is a top-tier performance for all major underwriters during the period.

BLI looks to be experiencing a temporary drop in its results due to the Covid19 pandemic. The length and depth of that drop is unknown at this time.

I suspect lower than normal results will extend through at least the end of 2020 to some degree as global demand picks up at varying speeds over time.

When we learn more about management’s IPO pricing and valuation assumptions, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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